ECGD
RE Adams Esq
HM Treasury Treasury Chambers Parliament Street
London, SW1
DCC HKD OPA
083/2
Export Credits Guarantee Department
PO Box No 272
Aldermanbury House
Aldermanbury
London EC2P 2EL
Telephone 01 382 7000 Direct 01 382 7712 Fax 01 382 7649 Telex 883601
Your reference
Our reference EFD 3/19/7/32
Date
31 January 1986
-
Dear Bob,
NEW HONG KONG TUNNEL CO. (NHKTC)
LILLEY CONSTRUCTION LTD
SECOND TUNNEL
HONG KONG DOLLAR FINANCE
MKK 178/1
RECEIVED IN REGISTRY
04 FEB 1986
DESK OFFICER
INDEX T PA
REGISTRY
Action Taken
I refer to Ray Dunn's letter to you of 25 September 1985 concerning Lilley Construction Ltd's bid to build the second tunnel linking Hong Kong to the mainland and Mrs Case's letter of 21 October 1985 to Martin Baker giving approval for us to support Hong Kong dollar finance in respect of this bid.
2. The consortium, NHKTC, of which Lilley was a member (led by Kumagai Gumi of Japan) was subsequently awarded the contract, however, we have been advised by Lilley that to maintain their position in the consortium they have been asked to put forward a stronger financial package. Lilley consider they can do this if we can agree to the fixed interest rate of 11.2% we had quoted for this business being brought down to the new Consensus rate for the market of 10.15%. This request follows the commitment given by NHKTC to the Hong Kong government that in respect of the rail element of the project it will provide HK$800m at a fixed rate of 10.5% for a period of 10 years from completion. In turn, NHKTC requires its members to provide a proportionate share of the required commitment in respect of the interest rate. We are told by Lilley that other members of the consortium have satisfied this requirement and Lilley see the revised rate of 10.15% helping them to fulfil the requirement.
3. For standard currency business interest rates are normally held on the basis of the appropriate Consensus rate at the outset or whatever lower Consensus rate may emerge in the holding period. This is regardless of whether the lower rate may result in more subsidy being paid on the currency concerned (as is no doubt the case for sterling at the present time).
4.
For non-standard currencies, we likewise hold interest rates (for six months) and since a change in the Consensus rate should make no difference to the relative subsidy position of that currency to sterling or dollars (as originally projected) there is an argument for us to follow the standard currency practice of simply tracking any drop in the Consensus rate in the holding period.
1
Q